Saturday, January 08, 2011

500 Shareholder Rule Causing Facebook to Go Public?

According to reports, Facebook collected $355 million in profits just last year, which may force its CEO Mark Zuckerberg to take his company public in 2012.

Reuters reported that Goldman Sachs, who just earlier this week invested $450 million in Facebook, have hand delivered the details about the financial aspects of Facebook to very high net worth clients on Thursday, January 6.

In one of the documents that the company delivered, it stated that Facebook had generated $1.2 billion in revenue (with $355 million in pure profit) in the first nine months of 2010.

Considering that Facebook only broke even in September of 2009, those numbers sound fantastic. However, Wedbush Securities analyst Lou Kerner, who owns Facebook shares, told Reuters that “the revenue kind of is in line with our expectations."

"The surprise was on the profitability. I think it highlights that Facebook is likely to have margins that are going to exceed Google's margins," he said.One of the recipients of the documents delivered by Goldman Sachs told the Wall Street Journal that Facebook was on the right track to having more than 500 stockholders by the end of 2011.

This would mean that, according to the Securities and Exchange Commission’s “500 Shareholder Rule,” that Facebook would be required within 120 days to become a reporting company, even if it wasn’t public. The actual Securities Exchange Act of 1934 states, “within one hundred and twenty days after the last day of its…fiscal year.”

Facebook’s current fiscal year does not end until December 31, 2011. This would make the 120 day deadline April 29, 2012.

Now, of course, all of this is mere speculation, but Goldman Sachs seem pretty confident in their prediction that this will all go down in April 2012.

There had been rumors that Facebook would attempt to get around the 500 shareholder rule via a “special purpose vehicle” that would allow Goldman Sachs high-end clients to invest in Facebook without the rule applying, but the document released by the Wall Street Journal shows that this will not be the case.

Back in 2008, Zuckerburg said that he did envision an IPO at some point in the future, but just last May, he made it very clear that he was not desperate for public cash at all.

"We are definitely in no rush," Zuckerberg told the Wall Street Journal in May. "If you don't need that capital, then all the pressures are different, and the motivations (to go public) are not there in the same way."

Who knows what may happen, but looking at all the numbers and information, it looks as though Facebook will definitely be becoming a reporting company sometime in the near future.